Accurate disclosure of your workforce is essential when arranging liability insurance. Insurers rely on the information provided in your Statement of Fact and Quote Summary, and incorrect declarations can affect cover, premiums, and the outcome of any future claim.
Why correct disclosure matters
Businesses must declare everyone working for them, including employees, labour-only subcontractors, and certain self-employed workers who operate under the business’s direction. Failing to disclose these individuals can lead to reduced claim payments or, in serious cases, claims not being paid at all.
Employers’ Liability vs Public Liability
Employers’ Liability
Covers injury or disease suffered by employees while working for you. It is compulsory for most UK employers.
Public Liability
Covers injury to third parties or damage to their property caused by your business activities. It does not cover injury to employees.
Understanding who counts as an employee is crucial, especially when subcontractors are involved.
Labour-Only vs Bona-Fide Subcontractors
Subcontractors generally fall into two categories. Understanding the difference is essential for declaring your workforce correctly.
Labour-Only Subcontractors (treated as employees)
These individuals typically:
- Work under your direction, supervision or control
- Carry out work where you are responsible for the quality and outcome
- Use materials, equipment or tools supplied by you (even if they bring small personal tools)
- Are paid by the hour, day, week or month
- Do not have the authority to employ others
- May include agency workers, CIS workers, temporary labourers, work gangs and CSCS card holders
- May also include individuals “borrowed” from another business to work under your control
Why accurate declaration is essential
Labour-only subcontractors are treated in law as if they were your employees. If they cause injury to someone else, or if they are injured themselves while working for you, the legal responsibility will normally fall on you as the employer. Because of this, they must be included under both your Employers’ Liability and Public Liability insurance.
If labour-only subcontractors are not declared accurately:
- You may not be paying the correct premium for the level of risk your business presents
- Insurers may apply proportional settlement, reducing the amount paid on a claim
- Example: if you have only paid 80% of the premium you should have paid, the insurer may only pay 80% of the claim
- If the number of undeclared workers exceeds the insurer’s acceptance limits, the claim may not be paid at all
- You could be left personally responsible for compensation, legal costs and associated expenses
- Your policy may be cancelled or voided if the non-disclosure is considered deliberate or reckless
- Future insurance may become more expensive or harder to obtain
Bona-Fide Subcontractors (independent businesses)
These individuals or firms typically:
- Operate as an independent business in their own right
- Are brought in to complete a specific or specialist job you do not undertake yourself
- Decide how the work is carried out and manage their own methods
- Are responsible for correcting any unsatisfactory work
- Provide their own materials, tools, equipment and labour
- Invoice you for the job rather than working on hourly or daily rates
- Have the authority to employ and pay their own workers
- Hold their own liability insurance for themselves and their employees
Examples in practice
Labour-only example:
A subcontractor who works mainly for your business, uses your equipment and is paid hourly is likely to be treated as a labour-only subcontractor. Employers’ Liability cover is required.
Bona-fide example:
A specialist contractor who brings their own equipment, controls their own work and employs their own staff is typically bona-fide. Liability for their workers remains with them.
Important Disclaimer
This article provides general guidance only and does not constitute advice. Every business is different, and insurance requirements can vary depending on your specific circumstances. For tailored information or clarification on your own position, please contact P F Spare Insurance Brokers directly.